Ether’s Bitcoin Beating Rally Not Just Because of Potential ETF Approval: Bernstein

February 28, 2024 | by


Ether (ETH) has been outperforming Bitcoin (BTC) this year, with a 33% gain, and according to brokerage firm Bernstein, this rally is not solely due to the potential approval of a spot exchange-traded fund (ETF). The research report highlights five catalysts contributing to Ether’s recent gains. The report mentions that the deflationary nature of the Ether supply since the transition to a proof-of-stake consensus model in 2022 is underestimated. Additionally, the low amount of Ether held on exchanges, currently at an all-time low of 11%, suggests that more of the cryptocurrency is being locked up for decentralized finance (DeFi) purposes. The growth of ETH transaction fees and increased use of financial smart contracts on Ethereum Layer 2 networks are also driving demand and value accrual to ETH. Furthermore, upcoming upgrades to the Ethereum blockchain and potential revenue sharing with token stakers are expected to further enhance Ether’s rally.

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Ether’s Bitcoin Beating Rally

Ether (ETH) has been outperforming its larger rival, bitcoin (BTC), with a 33% gain year-to-date. This rally has been driven by a combination of factors that go beyond the potential approval of a spot exchange-traded fund (ETF). This comprehensive article will delve into the catalysts behind Ether’s impressive performance and explore the various factors that have contributed to its rally.

Deflationary Ether Supply

A key factor contributing to Ether’s rally is its deflationary supply. Since the Ethereum blockchain’s shift to a proof-of-stake consensus model in September 2022, the supply of Ether has not increased. This shift has resulted in a decreased number of new Ether being created, leading to a limited supply in the market. Despite this fundamental shift, the deflationary nature of Ether’s supply has been somewhat underappreciated. This scarcity has played a significant role in driving up the value of Ether.

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Decreased Ether on Exchanges

Another factor contributing to Ether’s rally is the decrease in the amount of Ether held on exchanges. According to a report by Bernstein, the amount of Ether held on exchanges is at an all-time low of 11%. This decrease indicates that more individuals are locking up their Ether holdings, reducing the available supply on exchanges. The locking up of Ether can be attributed to various factors, including the growing popularity of decentralized finance (DeFi), the staking of Ether in pools, and increased usage of layer-2 solutions.

Locking up Ether in Staking Pools

The rise of staking pools has been another catalyst for Ether’s rally. Staking pools provide incentives for Ether holders to stake their tokens, which involves locking them up in a network to support its operations. Staking allows holders to earn a passive income in the form of additional tokens or rewards. As more individuals recognize the potential returns from staking their Ether, the demand for staking has increased. This increased demand for staking has resulted in more Ether being locked up, further reducing its available supply.

Smart Contracts and Layer-2s

Smart contracts and layer-2 solutions have also played a significant role in driving up the value of Ether. As more Ether gets locked up in smart contracts, the demand for the cryptocurrency increases. Smart contracts enable the creation and execution of self-executing contracts with predefined conditions. The growth of decentralized finance (DeFi) and non-fungible tokens (NFTs) has resulted in a higher demand for smart contracts, leading to increased usage and value for Ether.

Layer-2 solutions, such as Arbitrum, Optimism, and Polygon, have brought scalability and lower fees to the Ethereum network. These layer-2 networks help alleviate congestion on the mainnet and reduce transaction costs. The introduction of layer-2 solutions has played a vital role in the revival of decentralized finance on the Ethereum network, driving up the demand for Ether.

Eigen Layer and Restaking Ether

The Eigen layer, a protocol used for restaking Ether, has also contributed to the rally of the cryptocurrency. The Eigen layer incentivizes users to restake their Ether holdings by offering them opportunities to gain from new tokens and services launched on the Eigen layer. This additional incentive has attracted more staking demand, leading to an increase in locked-up Ether and driving up its value.

Scalability and Lower Fees with Layer 2 Networks

Layer-2 networks have been crucial in improving the scalability and reducing the fees associated with transactions on the Ethereum network. The introduction of layer-2 solutions has enabled faster and more affordable transactions, making decentralized finance more accessible and cost-effective. The scalability and lower fees provided by layer-2 networks have resulted in increased usage and adoption of the Ethereum network, driving up the demand for Ether.


This revival of decentralized finance has had a positive impact on the overall Ethereum ecosystem, contributing to the rally of Ether.

Token Economics and Revenue Sharing

In recent years, the emergence of decentralized finance (DeFi) tokens has allowed for revenue sharing with token stakers. DeFi tokens enable users to earn rewards or a share of the platform’s revenue by staking their tokens. This revenue-sharing mechanism has incentivized more individuals to stake their Ether holdings, resulting in increased demand for the cryptocurrency.

A healthy DeFi ecosystem with robust token economics drives higher activity and leads to increased Ethereum fees. As Ethereum fees continue to rise based on higher blockchain activity, more value accrues to Ether. This increased value has contributed to the rally of Ether.

Dencun Upgrade of Ethereum Blockchain

The upcoming Dencun upgrade of the Ethereum blockchain, scheduled for March this year, is expected to have a significant impact on the value and demand for Ether. The upgrade aims to reduce transaction costs on layer-2 networks by 90% and improve the profitability of these networks. By reducing congestion on the mainnet and driving higher volumes to the ecosystem, the Dencun upgrade will further enhance the value of Ether.


Ether’s rally has been driven by multiple catalysts that go beyond the potential approval of a spot ETF. The deflationary nature of Ether’s supply, decreased Ether on exchanges, locking up Ether in staking pools, smart contracts, layer-2 networks, token economics, and the upcoming Dencun upgrade of the Ethereum blockchain are all contributing factors to the rally. It is clear that the demand for Ether is being driven by a combination of technological advancements, increased adoption of decentralized finance, and new revenue-sharing models. The approval of an ETF, while significant, is not the sole reason behind Ether’s impressive performance in the market.

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